All Forum Posts by: Randall Alan

@Byron Kim

There are no good experiences with home warranty companies from my experience from a landlord perspective .  

They can save you money on an occasional repair, at the expense of your sanity.  

The $85 - $125 copay is the same you would pay for a trip charge by a local contractor. 

The biggest problem is that they usually internally supply parts - so if your part is unique by any means, you will be waiting until they can source that part.  We waited 3 weeks for a condenser motor and finally got them to give us permission to local purchase it - which could have been done on day with a local contractir.  Being without air for 3 weeks in Florida in the summer is unacceptable!  The company offered fans as a substitute.  Again, not an acceptable solution.

Regardless, you are usually waiting for weeks for parts.  The concept of a home warranty is admirable… but the execution has always been lacking.

You won’t catch me buying one ever again

All the best!

Randy

@Mario Morales

Selling directly is the cheapest route of the two you list - but realize that one (the refinance) lets you keep the property and the other disposes of it.

  If you cash out refinance you incur (more or less) all the lending fees associated with a financed property purchase (even though you are just refinancing the property you already own), and then you incur significant fees when you sell the property (closing costs, commissions, etc).  So incurring the fewest expenses is the cheapest exit plan.

There is no tax advantage to refinancing the property first - in fact, the refi will often force the taxing authority to reassess the value of the property - which would likely remove any tax grandfathering you may have - raising your taxes.

There is no advantage to doing a two step process like you mention.

Randy

@Joey Keske

Hi Joey,

I'm over in Lakeland.  I attend 2 meetups a month in Lakeland... One is the "Polk County Bigger Pockets Members Networking Group".  It just met this week, but meets once a month. 

https://www.meetup.com/polk-county-bigger-pockets-meetup/

The other is Landlords & Lagers... it meets the 3rd Tuesday of each month at Cobb & Pen in Lakeland.  The next meeting is the 20th of this month.  It usually runs from 7-9pm... would love to see you there!

Neither involve any pitches or selling... just real estate minded individuals (investors of all levels - from want-to-be to seasoned professionals - realtors, service providers etc) that get together and discuss real estate investing.  Each is about 1/2 a social group, and the other half, learning and sharing from others in the industry.  Both are pretty much mix and mingle events.  They are free of charge (except for whatever you buy to eat / drink from the restaurants)

Would love to see you there!

Randy

@Mak K.

@Mak K.

Usually the insurance company will let you pick a licensed company to do the work to your property.  They are going to write up a field estimate and are willing to (usually) pay you (the homeowner) or your preferred Contractor that money for the repair.  

Often they under quote what they could pay given being shown additional work needed, etc…. So be aware of that.   

If there is a lien holder they are usually more picky on distributing the money and will often make the check payable to you and the insurance company (jointly) who will then piecemeal the money back to you as repairs are completed.  (The idea being the insurance company doesn’t want you to walk off with $30k and leave the roof not repaired, so they put controls in place to prevent that). 

Just tell your insurance company you want to use (the name of your company).

We have ‘project managed’ a fire claim before and we did all the painting and replaced the cabinets ourselves.  We used the insurance company's preferred vendor for the smoke remediation… but we ‘made out like bandits’ on the painting / fixture replacement because they were wrote up  like $8,000 for the work and it probably took us 20 hours of work and $750 in materials to put things back together.  

If you are staying in their field estimate for the repairs they likely aren’t going to care who does the work.   
I would just talk to your adjuster… you aren’t going to ‘mess up your claim’ or piss anyone off by asking them about your specific question.  they are usually pretty straight forward to work with. 

All the best!

Randy

@Dallis Thomas

I’m in Lakeland.  We use Harr & Associates over in the Clearwater area (they write policies across all of Florida)…

https://www.harrinsurance.com

Contact info is on that link.  Here’s the thing though… 90% of insurance in Florida seems to be cheapest with Citizens (the insurer of last resort).  So don’t be surprised whoever you check out if you end up with a citizens policy.  

Overall, going with an independent insurance agent will mean they will shop for the best price available… whereas if you called a singular insurer… say Progressive or whomever…. They are just going to quote you THEIR rate.  So the smart thing is to find an insurance agent that reps multiple companies.  They will find you the best rate available.  But just know insurance rates are insane in Florida.  We have 25 properties… we have seen back to back nearly $1,000 increases the last 2 years on some of our policies.  So what was a $1,000 policy 2 years ago is closer to $2,500-$3,000 now.  I will say though with this last renewal period some insurers are actually starting to lower their premiums… a little, after the Florida legislature made policy changes that favored the insurance companies… so that is at least a small step forward.  

Hope it helps!

Randy 


 

 @Spencer Herrick

Unfortunately you have to usually leave 20-25% equity in a property you borrow against - so that more or less means there is little you can borrow against your first rental I suspect.  if you think there is more equity there you could have an appraisal done… but some lenders will not re-evaluate a recent purchase for a set period of time… they will just stick with the old purchase price as its value (varies by lender) unless you can show significant improvements you did to justify a higher price. 

Your next cheapest option would be to buy a multi-family as your primary home.  You could do that for 3-5% down.. live in it for a year to meet typical requirements for use… then move into a new house, and ‘voila’ - you bought your second (multi-family) rental for 3-5% down instead of 20-25%.

It is entirely possible though that you will face debt to income issues on your first rental if your lender wants to see a year or twos worth of rental history before counting your rental income to offset your debt payments…so beware of that.

Otherwise you may have to look at creative financing… maybe bringing in a money person where it was a short term investment for them, like “I’ll give you 8% on your money (versus the 4-5,% you could earn from the bank CD) if you will partner with me on this purchase.” This might be a descent proposition to a family member with resources? You could secure the loan / partnership with a 2nd lien against the property to help guarantee their position. 

Those are my first thoughts for you.

All the best!

Randy 

@Christian Licata

First, start off deciding what your objective is.  Most of what you mention is flipping, which can give you big chunks of cash when you sell, but comes with inherent risks and challenges… not the least of which is you being out of state trying to do them.  They also come with a 15-20+% tax bill when you sell them.  
In today's market you need a GREAT spread between your purchase and ARV values and that isn't the easiest thing to find in a high market.

Being brand new you may not know all the ins and outs of flips… but it’s easy to get exploited in a number of ways by people you hire to do the work. Flips literally come with thousands of small decisions, and if the decision maker isn’t on site to oversee those, you will likely show up and have a lot of “that’s not the way I wanted it” type of results.  Just getting contractors to show up can be a challenge, and if no one is looking over them they take ‘creative freedoms’ on how and when your job gets done. 

While slightly more “boring”, with the amount of money you have to work with you could probably finance 4-6 $200,000 rentals and generate monthly income that could go a long way towards replacing / supplementing  a descent portion of your W2 income.  If you cleared $300/month per rental that’s $14,400-21,600 / year in cash flow.  You also have 4-6 properties appreciating at market rate.  Even if that was only 3% - that is $24-36k of equity you are building YEARLY on $800,000 - $1,200,000 worth of real estate… so in 10 years that would be $240k - $360k of additional profit you would make if you sold then.  Plus, you get to depreciate the properties by 3.3% a year on your taxes - saving you $26k-40k of taxable income as well… all while your tenants pay down your mortgage with their money.  
The amount of effort versus a flip is so much less, and your taxes are WAY better.
There is a lot less risk as well.  Flips - especially your first few - can be somewhat dangerous if you misjudge your expenses or run into unexpected expenses.  It’s easy to go over budget or not realize all the items you need to account for until you start ripping into things and suddenly your ‘profitable’ flip is upside down.  You also have to close twice on flips… once to buy it, and then to sell it… so closing costs should not be ignored.  There are also holding costs to consider including insurance, utilities, and potentially financing costs if you didn’t buy the property outright. 
The thing about flips is that they are ‘one trick ponies”… you only make money once - when you sell them - then you have to start over and find a new one, whereas rentals deliver their income month after month, year after year.

We have done 6 flips and own 37 rentals.  They both have their good and bad aspects… but rentals are far easier day in and day out.   Flips in today’s market are more challenging and take a lot more effort.

Hope it helps!

Randy 

@Jitao Niu

Being that it is a local bank - I would make an appointment with a real estate loan officer at the bank and go in and speak with them.  So it sounds like they wanted to see you maintain deposit accounts with the bank and now they have possibly removed a discount they had given you when you took out the loans?  

I would review my loan agreement - as the bank must abide by the terms within that.  If it is a fixed rate loan, I don't see how they can increase the rate if you are not defaulting - but your mortgage / loan agreement should spell things out for you.   

Make an appointment, be civil, and talk it out with them.  Worst case try pleading ignorance and ask them to rescind the increase now that you understand the situation and you will be sure to do whatever it is they are wanting.  Smaller banks have more leeway than bigger banks.  Realistically most banks would send you a warning letter if you were doing something they didn't like.  

Depending on what your current interest rate is, it may be worth looking at refinancing the loan to get a lower rate?  You've got 40,000 reasons to try and figure / work it out!

Hope you do!

Randy 

@Chelsea Schaefer

I'm not an expert...just another investor... I also don't know all your circumstances ... but I provide the source for you to dig into it deeper down below.  

The current document you probably want to look at is this:

https://www.irs.gov/publications/p925#en_US_2023_publink1000...

Generally, the passive activity loss for the tax year isn’t allowed. However, there is a special allowance under which some or all of your passive activity loss may be allowed. See , Special $25,000 Allowance.

Phaseout rule.

The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.

There are several examples with different limitations in this publication - so I would read it to make sure which one applies to your situation..

My guess is that your CPA is on point... but will let you be the judge.

All the best!

Randy

@Chris Doucette

If it sounds to good to be true....

It's possible they are just quoting you their P&I payment, when you are thinking they are quoting you principle, interest, taxes, and insurance.  That would be my first guess.  Interest rates are in the 6-7% range... so it doesn't take a rocket scientist to figure out if you are increasing your loan amount by ~$50k, and at a higher interest rate,  your payment has to go up or your terms have to extend.  Maybe they are doing a 40 year mortgage, or a balloon payment where you still have a big payoff at the end of the term,  or something like that?  But at the end of the day, the numbers don't lie.  You would have to see all their terms to figure out where they are 'squeezing the balloon' in one place to make it sound attractive and be able to quote something like that.

Buyer beware!

All the best!

Randy